How fintech entrepreneurs are innovating new rails of finance in SA and SEA

Raj Ganguly, Kabir Narang

Recently, the two of us were discussing the pace of digitization for companies in South Asia (SA) and Southeast Asia (SEA) post-Covid. We both agreed on one thing: There is enormous potential for digital financial services to transform banking and commerce innovation.

The acceleration of software adoption that we are seeing across enterprises and SMBs is also driving digitization of financial services. This is happening across areas in financial services like banking, payments, insurance, and asset management.

Pure-play fintechs are upending the way we do business everywhere, but in SA and SEA in particular, entrepreneurs are building entirely new ways of making payments, building credit, and accessing loans for consumers and businesses. They are precisely the kind of entrepreneurs we want to support at B Capital Group—ones who are fundamentally transforming their industry. There are a few broad areas we are excited about that include new payment and lending models, financial access and inclusion especially in countries like Indonesia, verticalized financial services, and infrastructure for digital assets.

Given our shared enthusiasm, we thought we’d offer several high-level observations on how entrepreneurs have driven recent successes in this space. Hopefully, they can serve as points of inspiration for those of you doing similar work.

1. Don’t limit your target customers to middle-class SMEs and consumers  

Products targeting customer segments like micro small and medium enterprises (MSMEs) and blue-collar workers are, without a doubt, very difficult to get right. Given the uniqueness of each locale in SA and SEA, there are few tried-and-true strategies for driving sustainable revenue at scale with these kinds of services. 

These factors create a big opportunity for entrepreneurs who are passionate about solving the needs of the unbanked and underbanked. The math underscores the opportunity size: India alone has 1.3 billion people, and if your product is simply focused on the 350 million people in the middle class, you are excluding 1 billion people from your addressable market. 

Source: Google & Temasek e-Conomy SEA 2019.

The use of digital financial services among the unbanked and underbanked is projected to grow dramatically in the next few years. In SEA alone, e-wallet penetration rate among the underbanked will triple to 78% by 2025, according to BCG. Meanwhile, adoption among the unbanked will quadruple from 13% to 58%. With the right support, today’s lower-income segment will become tomorrow’s middle class.

This presents a lucrative opportunity for entrepreneurs who can creatively meet the needs of MSMEs and blue-collar workers. If that’s you, a major success factor lies in your ability to generate multiple profit pools through a product-led approach. For instance, Indonesian fintech platform PayFazz drives commission through its MSME services in two ways:

1. Its app facilitates financial transactions between shopkeepers and people in their local neighborhoods. More than 300k shopkeepers have essentially become secondary bank agents for their community. 
2. Its lending marketplace brokers transactions between lenders and small business borrowers, serving as a channel for underbanked and unbanked people to access savings and lending solutions.

PayFazz’s innovative business model shows how building financial services products that are critical for accelerating financial inclusion amongst the MSME and blue-collar population can shape a healthy and sustainable business. 

2. Double down on product-led growth

As an entrepreneur, you oversee a myriad of factors influencing your product’s success: pricing, branding, and go-to-market partnerships, to name just a few. If you’re finding yourself spread thin, it may be time to get back to the basics. At the end of the day, offering an unbeatable product experience is how you’ll reliably capture customers from established platforms and other competitors in your niche. 

India's MSME accounting fintech Khatabook is a great example of a company that’s succeeding with product-led growth. Its core offering is a mobile app that helps shopkeepers replace manual, error-prone ledgers with a digital system of records for tracking customer transactions and payments. 

The app’s Venmo-like feature has proven to be especially valuable: Merchants can use it to send free SMS payment reminders to customers and easy payment links, which have been shown to speed up repayment time by as much as 3x. 

Khatabook’s payment reminder feature drives strong product-led growth for the app. 

The app’s undeniable ROI  and ease of use — particularly with merchants who are first-time internet users — have created the perfect viral loop: Khatabook users are driving strong word of mouth, which in turn is powering the company’s organic customer acquisition. 

Great product experiences are not just for consumer products or digitally savvy customers. To hook the attention of an underserved population, create a frictionless product experience that offers clear ROI. 

3. Turn your product into a platform with cross-sell features and embedded financing

Beyond acquisition, a stellar product experience creates a strong foundation for future cross-selling, especially if your product captures crucial customer data. Using this data, you can pinpoint valuable services to cross-sell, resell, and embed — which in turn increases user retention and monetization.

One recognizable example of cross-selling is the rise of buy-now, pay-later models in the hardware space. Mobile phone providers have become known for offering an easy path for users to upgrade their devices as often as every couple of years, and this approach yields a quadruple win for all four entities involved: The merchant is happy because they’ve upsold the customer; the brand — be it Apple or Samsung — is happy because they’ve formed product loyalty; the financier is happy because they’ve made some margin; and, of course, the customer is happy because they have acquired the latest tech. 

And with the rise of embedded financing, you don’t even have to start out as a fintech to offer financial services to users. Singaporean used car marketplace Carro is a perfect example. Shortly after it launched in 2015, it started offering auto insurance and loan financing options to its customers. By 2017, 70% of the company’s revenue came from its auto finance services. 

Some companies have gone from embedding financial services in their platform to becoming banking entities themselves. Recently, a Grab and Singtel consortium received a highly coveted digital banking license in Singapore, allowing these companies to start offering their users banking accounts, debit, and credit cards.

Savvy startups would do well to obtain these banking and financial licenses because,  in the long run, they represent a way to profitably expand the services they’re able to offer while driving down acquisition costs. When positioning themselves to win such licenses, entrepreneurs should consider some of the following questions:

• Do you have adequate capital?
• Have you built solid early partnerships?
• Are you working alongside traditional banking incumbents?
• What is the health of your team, financing, and overall ecosystem? 

All of the above will smooth your path when engaging with financial regulators. Fortunately, that’s the bread and butter of our work at B Capital, where we’re well-positioned to help startups think through some of those aspects. 

At B Capital Group, we are dedicated to work that expands financial inclusion and creates valuable user experiences. We think ripe opportunities abound for intrepid SA and SEA fintech entrepreneurs. What other exciting developments do you see on the horizon?  

With thanks to Priyadarshini Banerjee for her insights.